Wednesday 25 Nov 2020 | 02:13 | SYDNEY
Wednesday 25 Nov 2020 | 02:13 | SYDNEY

Sovereign Wealth Funds and the WTO


Mark Thirlwell

25 January 2008 07:39

One of the more intriguing aspects of the current financial turmoil has been the role played by Sovereign Wealth Funds (SWFs). As this Leader in the Economist points out, SWFs have been involved in a large-scale recapitalisation of Wall Street. Once upon a time, we used to think that responding to international financial crises involved money flowing from the developed world, often via the IMF, to developing countries. This time around the bailout process has been working rather differently.

As my colleague Stephen Grenville pointed out in an earlier post, there have been growing demands for the international regulation of SWFs, with the IMF, World Bank and OECD all being encouraged to consider the issues involved. One possible reaction on the part of the rich world to the novel form of emergency lending now being disbursed by the Petropowers and Asian exporters is that beggars can’t be choosers.  But I suspect that, whatever the short term exigencies, in the longer term such a laissez-faire attitude will not be acceptable to rich world politicians.  In this light, a new working paper by Aaditya Mattoo and Arvind Subramnian makes for an interesting read. 

A fair chunk of their paper involves making the case for the WTO, rather than the IMF, to take the lead in dealing with undervalued exchange rates and global imbalances. But they also argue that the WTO would be the natural place to forge a multilateral agreement on SWFs, pointing out that the WTO already, if somewhat opaquely, covers investments by SWFs in its services agreement, the General Agreement on Trade in Services, or GATS. They note that since one reason for lack of progress in the current Doha Round of trade negotiations has been a shortage of private sector interest, by encouraging the WTO to deal with hot-button issues such as SWFs and exchange rates it might be possible to get the private sector to re-engage and so get the whole process moving again. Alternatively, of course, introducing yet more contentious issues could simply create a whole new set of negotiating road blocks and make things even harder than they already are . .